Gearing Ourselves for Globalization Free trade isn't the cause of the world's ills, says Columbia professor Jagdish Bhagwati. It's the best cure we have for them--if only we can stomach it.

By John Heilemann

August 1, 2004

(Business 2.0) – His name may not be immediately familiar, but anyone interested in understanding globalization ought to be acquainted with Jagdish Bhagwati. Born in India, schooled in Britain, and now an American citizen, Bhagwati is an international economist and one of only 10 scholars who hold the title of University Professor at Columbia. He has also served as special adviser on globalization to the United Nations and external adviser to the World Trade Organization. At 70, he is widely tipped as a future Nobel laureate, so respected among his fellow economists are his insights into the workings of foreign trade. In more than four decades of discoursing on that topic, he has published, astonishingly, over 300 articles and dozens of books.

As you might suspect, given Bhagwati's pedigree, some (though not all) of his writing has been a bit ... er, challenging (at least for those of us who react to the sight of complex equations by switching on SportsCenter). But now Bhagwati has produced a new book aimed squarely at non-Ph.D.s. The book is titled In Defense of Globalization, and in it the professor addresses the concerns that animated the antiglobalization movement as it reached a crescendo at the turn of the millennium. Does the international market economy worsen poverty in developing countries? Does it erode democracy? Hurt the cause of women? Trash the environment? Exacerbate the exploitation of child labor? As Bhagwati told me when I visited him recently, "This is what average citizens are worried about, and what--if I took off my economist's hat and thought like a normal human being--I would worry about as well."

Bhagwati's answers to all these questions make for a supremely worthy read. But as readers of this magazine are well aware, the complexion of globalization is changing at lightning speed. As the information revolution makes trade in white-collar services as practicable as trade in goods, new questions are arising, along with new fears that are likely to threaten the cause of economic integration. Bhagwati had finished his book before the recent controversy over outsourcing flared. Yet naturally he has much to say about the matter--though some of his views, I fear, may be a mite too sanguine.

Resisting Bhagwati's optimism isn't easy, for civility and a sunny disposition are his most irrepressible qualities. Clad in a lime-green shirt, with wizened-elf features and Groucho Marx eyebrows, Bhagwati says his book was inspired by his encounters with the anti-WTO protesters in Seattle in 1999. Unlike many avid free traders, Bhagwati decided to engage the opposition rather than airily dismissing it. "The typical approach of the pro-globalists is to say to the antiglobalists, 'Sit down, shut up, you don't understand economics,'" he explains. "I didn't want to do that. I wanted to take their arguments seriously."

And so he has--in no small part because he shares many of their values. Indeed, one of the greatest strengths of In Defense of Globalization, and of Bhagwati's work in general, is that he manifestly cares more about improving the lot of the poor than that of multinational corporations. But Bhagwati doesn't see these outcomes as mutually exclusive. Quite the contrary. Citing India, China, and the East Asian tigers, he puts forward a two-step thesis: Globalization leads to growth, and growth reduces poverty. And then he proceeds, chapter by chapter, to demonstrate calmly and with reams of evidence that in every area of antiglobalist concern--the environment, women's rights, child labor, etc.--reducing barriers to trade and investment is, on balance, socially benign as well as economically beneficial.

Bhagwati's case is made all the stronger by the fact that he's neither a Pollyanna nor a laissez-faire purist. He adamantly criticizes the "Wall Street-Treasury complex" for pressuring developing nations into the "imprudent and hasty freeing of financial flows" that led to the crises of the late 1990s in the Asian capital markets. He applauds the role of nongovernmental organizations such as Human Rights Watch, which can serve as "the eyes and ears of good legislation" in the area of corporate social responsibility. And he argues, more broadly, that because globalization does have its downsides, it should be managed so its pace is "optimal" as opposed to "maximal"--and that governments, together with the World Bank, need to provide "adjustment assistance" to workers in industries hammered by international competition. "Economists tend to say, 'Move fast, move fast,'" he told me. "I say let's move as quickly as possible, but let's have a safety net."

Persuasive as Bhagwati is about all this, I couldn't escape the nagging sense that his book was fighting the last war. In America, at least, the passions that once fueled the antiglobalization movement--and even the fears of the giant sucking sound that NAFTA was supposed to unleash--are no longer burning very hot. In their place we see a new wave of anxieties being sparked by offshore outsourcing. Unlike past worries about the effects of globalization, which mainly afflicted blue-collar workers, these new anxieties are taking hold among middle-class professionals, who suddenly see their prosperity jeopardized by English-speaking, college-educated Indians (and soon Chinese) willing to work for a fraction of the salaries paid to their U.S. counterparts. While such anxieties have been fairly muted so far, they're sure to grow more severe as fiber optics, satellites, and the Internet inexorably shrink the planet further and expose more and more American jobs to foreign competition.

Like virtually every economist, Bhagwati considers outsourcing an indisputably good thing--good for America, good for developing countries, good for the world economy. It's good because outsourcing is just another form of trade, and thus, like trade in tangible products, it expands the overall economic pie and makes companies more competitive. As for U.S. white-collar workers, Bhagwati allows that some of them will face a wrenching transition, but he is confident they will make it, and as new markets for skilled workers are created, their fears of outsourcing will fade. "We had much the same worries in the 1980s, when Walter Mondale said we were in danger of becoming a nation of hamburger flippers," Bhagwati notes. "But we did not become that, because all kinds of good-paying new jobs came about--many of them in IT."

I have no quarrel with Bhagwati on the economics of outsourcing; he's absolutely right. But I suspect he's badly underestimating its political dimensions. As University of California at Berkeley economist Brad DeLong has pointed out, trade in services in the early 21st century is likely to affect a far larger swath of U.S. jobs than were touched by trade in manufactured goods in the second half of the 20th. Many of these jobs are held by people unaccustomed to "transitions," let alone layoffs, or to seeing downward pressure on their wages. In the past, folks like this--well-educated, well-compensated knowledge workers--were typically reflexive supporters of free trade. But then it was easy for them to be, since their jobs and salaries weren't on the line. Now, as they perceive a potential price to pay, will they still be pro-globalization? Maybe so, but I wouldn't bet on it--at least not in the short run.

The best way to address this political quandary is to focus on the long run. "We need to be flexible, we need to be dynamic, we need to think about education," Bhagwati sensibly says. In particular, I would add, we need to invest in training and retraining to upgrade the skills of American workers to make them qualified for jobs that can't be outsourced overseas. We need to rebuild a social safety net that's becoming increasingly frayed. We need to pursue economic policies that lead to the kind of explosive job creation we experienced in the 1990s. And we need our politicians to do a better job of explaining that the benefits of globalization vastly outweigh its costs. As Bhagwati puts it, with a rueful smile, "If you're a free trader, your work is never done."

In fact, I'd say, it's only starting. During the next decade or two, the outsourcing revolution will arrive in full force, and the shock to our system will be jarring. When this next phase of globalization hits, it will need to be defended as vigorously as Bhagwati has defended its earlier incarnations. And you can rest assured that, till his dying day, the professor will be doing just that.

John Heilemann wrote "Pride Before the Fall." His next book is "The Valley."